The Discussion on the Regulatory Mechanisms of Income Redistribution Policies
It is well known that income redistribution policies have two tools:personal income tax and social security ex-penditure,with the latter also known as transfer income.Although both are tools of redistribution policies,personal in-come tax and social security expenditure are completely different in the way of working on income distribution.Personal income tax plays a role in limiting the income of high-income groups.In contrast,social security expenditure provides transfer payments for low-income populations through public pensions,medical insurance,and minimum living allow-ances,thereby raising the relative income level of low-income populations.Previous literature on income redistribution has focused on the methodology of measuring redistribution effects and measurements of redistribution effects in various countries using household survey data.The Kakwani decomposition of redistribution effects is a representative study of the former,while the latter is concentrated on the study of OECD mem-bers.The emergence of the Luxembourg Income Study Database(LIS)has greatly stimulated the measurement of redis-tributive effects in various countries.For example,an OECD study showed that around 2013,redistribution policies in 25 OECD members reduced the average market income Gini coefficient of the working-age population by more than 25％,with transfer payments accounting for 3/4(75％)and personal income tax accounting for 1/4(25％).The size of the redis-tribution effect is positively correlated with the level of economic development.Redistribution is the main reason why the per capita disposable income Gini coefficients in developed countries are lower than those in developing countries,while the market-determined Gini coefficients(i.e.,income gaps before redistribution policy intervention)do not show a clear correlation with the level of development.Previous literature focusing on methodology and measurement has overlooked the study of mechanisms of redistribu-tion policies working on income distribution.Why is the redistribution effect of transfer payments far greater than that of personal income tax?As tools of redistribution policies,what are the relative advantages and disadvantages of the two?The Kakwani decomposition shows that the redistribution effect is mainly determined by two factors:the scale and pro-gressivity of the policy.So which is more important,scale or progressivity?At the policy implementation level,should more attention be paid to policy scale or progressivity?These issues related to the mechanism of the redistribution pro-cess have not received sufficient attention so far,which is precisely the focus of this paper.Thus,this paper first explores the reasons for the stark difference in redistribution effects between the two policy tools,and then examines the associa-tion between the scale and progressivity of policy tools(including relative importance and correlation).The main conclusions of this paper are as follows.First,progressivity is the main source of the stark difference in re-distribution effects between the two policy tools,i.e.,the progressivity of transfer payments far exceeds that of personal income tax,ultimately leading to a much larger redistribution effect of social security expenditure than personal income tax.Second,regarding the correlation between the scale(average tax rate)and progressivity of personal income tax,on the one hand,there is a negative correlation between scale and progressivity,meaning that progressivity decreases as the average tax rate increases,with the two offsetting each other.On the other hand,in determining the redistribution effect,the scale factor is more important than progressivity.Therefore,the key to enhancing the redistributive effect of personal income tax is to increase the average tax rate while ensuring its progressivity.Third,there is a positive correlation be-tween the scale(transfer payment rate)and progressivity of transfer payments,meaning that as the scale of social security expenditure increases,the targeting of the social security system towards low-income groups gradually improves,with the two reinforcing each other.While expanding the scale of social security expenditure,allocating funds towards low-income groups as much as possible is key to enabling social security expenditure to play a redistribution role and can be regarded as a general rule of the redistributive function of social security.
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